'Sell in May and go away,' the adage goes. Lock in profits on
your stocks, book losses, take a vacation, avoid the market's
summer doldrums.Of course, unloading bad stocks is a good strategy
year-round, but in honor of tradition, here's our list of six top
'sell' candidates for May. They range from headline grabbers such
as Best Buy and J.C. Penney to less-well-known companies that are
suffering their fundamental challenges more quietly.
Use of GPS devices is soaring, which should be good for an
established player like Garmin (symbol
), one of the trailblazers in global positioning system navigation.
But Garmin, a leader when GPS mainly served pilots and boat owners,
faces growing competition now that navigation chips are embedded in
everything from smart phones to tablets to cameras.
The result is a shrinking business. Sales of automotive and
mobile devices, together accounting for about 55% of Garmin's
revenue, fell from $1.67 billion in 2010 to $1.49 billion in 2012.
Although the Switzerland-based company is pushing hard to increase
sales of in-dash navigation systems for vehicles, it warned in its
recent annual report that revenues from the critical automotive
business, which makes dashboard and portable units for vehicles,
are likely to continue falling. Overall, revenues fell by 2% in
2012, and Garmin's earnings of $2.78 per share were far below the
$3.51 per share the company made in 2009.
The firm's well-regarded high-end products, such as navigation
systems for aircraft, enjoy a relatively secure market because
stringent regulation by the federal government keeps new entrants
at bay. But those markets are not big enough to offset Garmin's
challenges in consumer products. At $34.72, the stock sells for 14
times estimated 2013 profits, which are expected to be down from
last year. That's too high. (Share prices are as of April 12.) The
shares yield a generous 5.2%, and Garmin has gradually raised its
dividend in recent years. Although the company says it is confident
that it can maintain its payout, a fall in the share price could
easily offset the income from Garmin's dividend.
2. Darden Restaurants
People have to eat, right? Yes, but they don't have to eat at
mid-price eateries such as Olive Garden, Red Lobster and LongHorn
Steakhouse, all belonging to Darden Restaurants (
). Analysts say the company faces long-term troubles unless its
tired brands spice things up with updated menus, restaurant
remodeling and slicker promotions.
Darden's chains occupy the space above fast food and below fine
dining. The firm is the biggest player in this casual-dining
category, giving it clout with suppliers. But diners can easily go
elsewhere if they want quick, inexpensive food, or if they prefer
to pay up for a memorable evening. A weak economy has hurt Darden's
traffic, and it may continue to -- especially as this year's
increase in payroll taxes chews into households' dining-out
All of this is pinching results. For the quarter that ended
February 24, Darden earned $1.04 per share, down from $1.28 in the
year-earlier period. Sales were up slightly, but only because the
firm added 108 company-owned restaurants and purchased 40 Yard
House restaurants. A worrisome sign: a 4.6% decrease in same-store
sales (sales at restaurants opened at least one year) at Olive
Garden, Red Lobster and LongHorn restaurants. Analysts expect
earnings to fall 12%, to $3.15 per share, in the fiscal year that
ends this May and to barely budge in the May 2014 fiscal year. At
$50.26, the stock sells for 16 times estimated current-year
earnings. Like Garmin, Darden sports a high dividend yield, in its
case 4.0%. Darden, too, says it is confident that it can maintain
the current dividend rate. Again, however, the yield is unlikely to
offset a fall in the share price.
3. Strayer Education
Everyone knows that college tuition has been soaring at two or
three times the inflation rate, and that should allow for-profit
colleges such as Strayer Education (
), owner of the 100-campus Strayer University and its online
operation, to keep raising prices. Add intense demand from adults
attracted to Strayer's curriculum, which focuses on business,
accounting, information technology and similar practical subjects,
and you'd expect Strayer to be printing money.
But it's not. For 2012, revenue was $562 million, down from $627
million in 2011 and $637 million in 2010, while per-share earnings
tumbled to $5.79, from $8.91 the year before. In fact, it's hard to
find a financial figure that hasn't moved the wrong way. The stock
has fallen from near $112 last July to $48.84. Strayer suspended
its dividend in November.
Strayer faces a lot of headwinds. College enrollment is falling,
and Strayer's drifted down to 49,323 in 2012, from 56,002 in 2010.
Lawmakers and regulators may clamp down on for-profit colleges that
have poor graduation rates and leave students with loads of debt
and jobless. Federal programs such as Pell Grants, a critical
source of funding, could shrink over budget and debt concerns, and
Strayer's future students could become ineligible for loans if too
many of their predecessors fall behind on payments. Finally,
Strayer's online study program faces growing competition from
traditional nonprofit institutions responding to students' demand
for low cost and convenience.
4. Electronic Arts
Electronic games are hot -- just ask anyone with a teenager glued
to a PlayStation, Xbox or Wii. But the market is evolving, with
console and PC players drifting away from less popular titles in
favor of blockbusters such as 'Medal of Honor,' 'Madden NFL,'
'FIFA' and 'Battlefield,' all developed by Electronic Arts (
). Over time, the trend will translate into lower sales for the
industry as a whole, says Standard & Poor's, which has a
'strong sell' recommendation on EA.
Blame the extraordinary cost of developing a superstar game,
which must have intense action and stunning animation, as well as
more -- and more-realistic -- dialogue.
A better economy could prompt consumers to spend more on games,
and EA may be successful with a new generation of titles for mobile
devices and social-networking sites, two areas seen as the future
of gaming. But these new types of games are less profitable, and
competition to create mobile games is tough because new firms can
easily meet the simpler technical requirements of small
The Redwood City, Cal., company has recovered from the lean
2008-2011 period, during which it lost money each year. But even
though 2012 revenues were near the peak reached in 2009, per-share
earnings of 23 cents paled next to the record of $1.95 in 2004. The
stock, at $17.58, trades for 16 times estimated profits for the
Signaling the depth of EA's problems, CEO John Riccitiello
resigned unexpectedly on March 18, not long after release of a
survey showing industry sales down 27% in February. 'In our view,'
says Argus Research, 'EA's problems are long-term, industry-wide
issues, and may not be resolvable by a new CEO.'
5. Best Buy
It's the retailers' nightmare, 21st century-style: Customers flock
to the store to see the latest product, they check competitors'
prices on their smart phones, and then they buy online. Although
it's not certain that this
phenomenon will swamp Best Buy (
) -- which has countered by promising to match online prices -- it
does reflect the kinds of new-era challenges the big-box
electronics chain faces. Computers, TVs, software and appliances
are commodities, and Amazon, Costco and Walmart can sell them just
as well as Best Buy, often for less. Moreover, movies and music are
moving from DVDs and CDs to online or cable, threatening Best Buy's
Making matters worse, more makers of high-tech gear are expected
to follow Apple's lead and open their own stores, undercutting
broad- based retailers. Best Buy is trying to fight back with the
store-within-a-store concept, recently announcing a deal with
Samsung, but many manufactures may prefer free-standing stores so
that they don't have to share the take with a host.
The numbers are unsettling. In the fiscal year that ended in
February, Best Buy reported a 7.5% drop in U.S. same-store sales of
electronic items, and a 21.4% decline in entertainment sales,
categories that make up 33% and 10% of revenue, respectively.
Computer and mobile sales, which account for 44% of revenue, were
up 7.5%, primarily from gains in smart phone and tablet sales. In
the quarter that ended February 2, the Richfield, Minn., company
reported a loss of $409 million, or $1.21 a share, not including
restructuring and similar costs.
Best Buy recently weathered a nasty fight with its founder,
Richard Schulze, who tried unsuccessfully to take the company
private and on March 25 was named 'chairman emeritus.' That seems
to have calmed things, and the stock has resumed its ascent -- the
shares have soared 106% so far this year, to $24.09. But who knows
what internal power struggles may loom? The company plans to close
some stores and reduce the size of others. That seems to make
sense, but investors should be wary of any company aiming to shrink
its way to greatness.
6. J.C. Penney
If there's a slam dunk on this list, it's J.C. Penney (
), the venerable department store chain that has been the subject
of one unflattering news story after another. A hot executive from
Apple and Target was brought in to turn things around. Dismal
results followed. His pay was slashed and then he was fired. And
now? Well, who knows what's next? Penney's board seems lost.
In late 2011, troubled Penney encouraged shareholders and
analysts by bringing in Ron Johnson as CEO. Then began a string of
strategy flip-flops as Johnson groped for ways to boost sales:
cutting back on discounts, then reviving them; focusing ads on
lifestyle, then emphasizing low costs; moving toward a
boutique-type store-within-a-store concept, then backing away. A
deal with Martha Stewart looked promising, but it provoked a costly
legal fight with Macy's.
The stock collapsed under Johnson, falling from nearly $43 in
early 2012 to $14.62 today. In the fiscal year that ended in
January, sales fell about 25% and Penney's board fired Johnson
putting the Plano, Tex., firm back in the hands of his predecessor,
Myron Ullman on April 8.
But wait -- why not buy low and wait for the turnaround?
Speculators see it that way, for sure; the stock jumped 5.5% on
April 11. But retailing is highly competitive, and customers are
demanding. They want high-quality products, rock-bottom prices and
no-questions-asked returns. Long-term Penney shareholders need
something to cling to, and all they have is a hope that customers
are loyal enough to return if the chain makes some smart moves.
What will those moves be? Who will make them? Right now, there's no
turnaround strategy to analyze. Until there is, stay away.
Personal finance and investing writer Jeff Brown has written for
The New York Times "You're the Boss" blog, The Street.com and
Knowledge@Wharton, a journal of the Wharton School of the
University of Philadelphia, where he also teaches writing. For 12
years he was the personal finance columnist at The Philadelphia